Monetary Policy Implementation with an Ample Supply of Reserves
59 Pages Posted: 24 Jan 2020 Last revised: 29 Jan 2025
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Monetary Policy Implementation with an Ample Supply of Reserves
Monetary Policy Implementation with an Ample Supply of Reserves
Monetary Policy Implementation with an Ample Supply of Reserves
Monetary Policy Implementation with an Ample Supply of Reserves
Monetary Policy Implementation with an Ample Supply of Reserves
Date Written: January 1, 2020
Abstract
We offer a parsimonious model of the reserve demand to study the trade-offs associated with various monetary policy implementation frameworks. Our model considers a reserve demand function that encompasses banks' preferences for reserves in the post 2007-2009 financial crisis world and incorporates shocks to the demand for and the supply of reserves. We find that the best policy implementation outcomes are realized when reserves are somewhere in between scarce and abundant. This outcome is consistent with the Federal Open Market Committee's 2019 announcement to implement monetary policy in a regime with an ample supply of reserves.
Keywords: federal funds market, monetary policy implementation, ample reserves
JEL Classification: E42, E58
Suggested Citation: Suggested Citation